I'll admit it. I'm not perfect. Throughout the years, I've made my share of investing mistakes. But I believe I've actually learned something from them. So without further adieu, here are 6 Foolproof Profit Principles to live by!

Profit Principle #1: Harness the Power of Compounding.

"Compounding," Albert Einstein said, "is mankind's greatest invention because it allows for the reliable, systematic accumulation of wealth." Now, Einstein was a smart man. But you hardly have to be a genius to make this concept work for you.

Compounding is essentially reinvesting the interest you received from the money you initially invested. Here's an example:

If you invest $1,000 and earn 10% interest on your principal at the end of each year, you'll get $100 interest at the end of the first year. Makes sense, right? Now, if you reinvested that interest for a second year,  you would start with $1,100, and thus would earn $110 interest. Stay with it, and you'll more than double your money every eight years.

Check out how your own money can grow with our compounding calculator right now.

Always channel most of your money into investments that throw off some kind of return up front (dividends, interest etc.). Cash flow not only limits your downside and calms your nerves, but also gives you a chance to reinvest your income for more income.

Profit Principle #2: Don't Try to Time the Market.

Much of the conflicting advice you hear about investments stems from the time horizon of the speaker. One well-known pundit insists you should sell any stock that drops 8%–10%. OK, this rule may hold some validity for short-term traders who buy stocks on margin (which means with borrowed money). But margin calls and options trading is a dicey game and not for the more conservative investor looking to earn tax-free long-term capital gains.

When trying to time the market, many investors usually end up taking myriad small losses that would have turned into significant profits had they simply hung on.

On the flip side, beware of "momentum" advisors who trumpet stocks that have recently staged a dramatic run-up. These picks may continue to perform well for a while, but if you fail to sell them immediately when they start to plummet, you'll lose your shirt. Overnight plunges of 20%, 30% and even 50% aren't uncommon. Unless you plan on never sleeping again, timing the market is not the way to build wealth.

Profit Principle #3: Diversification Is Good... But You Don't Need to Own Everything.

It's astounding the bravado of those who say you can build an adequately diversified portfolio with only six or eight stocks. I would never trust my financial future to just a half dozen CEOs (however capable or honest). Let's face it, the business world is constantly changing… executives come and go… businesses run into sudden difficulties that no outsider could ever foresee.

On the other hand, it isn't necessary to bet on every pony in the field. Seven years ago, the shrewdest players had zero or near-zero exposure to Internet stocks. Instead, they were heavily weighted (far above what the market indexes would call for) in "stodgy" old economy businesses like real estate. When the Internet issues crashed, real estate soared.

These days, you need at least 20 stocks to insulate your portfolio from a blowup in any single sector. Some credited investment analysts even recommend up 40 to 60 stocks. The number is really up to you and your risk tolerance. Just remember: Spread your risk to make sure that each investment brings unique value to your portfolio.